The Department of Justice has announced an M&A Safe Harbor Policy enabling acquiring companies to voluntarily self-disclose criminal misconduct of an acquired company to avoid criminal prosecution.
The acquiring company will have six months from closing to self-disclose misconduct in exchange for receiving a “presumption of declination to prosecute.” The six-month deadline applies whether the misconduct was discovered before or after acquisition.
To qualify for the safe harbor, companies must:
- Promptly and voluntarily disclose the misconduct to the DOJ.
- Cooperate fully with the DOJ’s investigation.
- Engage in timely and appropriate remediation and restitution.
The safe harbor applies to criminal conduct discovered in bona fide, arms-length M&A transactions. It does not apply to misconduct that was otherwise required to be disclosed or that is already publicly known to the DOJ.
The DOJ’s stated goal of the safe harbor policy is to incentivize acquiring companies to timely disclose misconduct uncovered during the M&A process. The DOJ believes that this will promote corporate compliance and help to protect consumers and investors.
The safe harbor policy is a significant development. It provides a strong incentive for acquirers to be proactive in identifying and disclosing misconduct at the acquired company. It also provides a measure of certainty for acquirers, enabling them to avoid successor liability for disclosed misconduct.
The policy follows the DOJ’s corporate Voluntary Self-Disclosure Policy, introduced in March. Under that program, companies can avoid, or reduce, criminal penalties and compliance monitoring by coming forward proactively when they discover internal misconduct.
The safe harbor policy is still new, and it remains to be seen how it will be implemented and applied in practice.